Whatâs Going On Here?Data out on Wednesday showed that Chinese producer price rises grew by their fastest since 2018, and the rest of the world might not be far behind. What Does This Mean?China was the first place to bounce back from the coronavirus pandemic, and things are still going strong. So strong, in fact, that demand for some products seems to be outstripping supply. Thatâs pushing prices up, which might be why the countryâs âproducer price indexâ â which tracks the prices of manufacturer-bought goods and services â was up a higher-than-expected 9% in May compared to a year ago.
Commodities are a big reason why: the prices of oil and certain metals have gone through the roof this year, and Chinaâs a major buyer. No wonder, then, that the countryâs recently taken steps to bring commodity prices back down⊠Why Should I Care?The bigger picture: Inflation could be China's next big export.
The risk of high producer prices isnât just that they feed into Chinese consumer prices: itâs that theyâll push up consumer prices in the US and Europe too, given that Chinaâs one of the world's biggest exporters (tweet this). Thatâd push inflation in those regions even higher, at a time investors are already worried itâs too high. More worrying still is that China-linked inflation mightnât show up in Western data. Governments, after all, donât pay much attention to prices of West-bought Chinese goods when they calculate inflation, which means economists and central banks might miss its effects even as consumers feel the pinch.
Zooming out: US and China are leaving the others behind.
The World Bankâs expecting the Chinese and US economies to grow 9% and 7% this year compared to last, which would drive global economic growth up by 5.6%. But the worldâs developing countries â which are bound to keep struggling with the pandemic â are only likely to grow 2.9%, their second-slowest growth rate in the past 20 years. | 